The Real Real Hustle

Sometimes I really worry at what publicly funded bodies appear to be trying to con people into doing.

I know the fashion is for having a go at smoking cessation co-ordinators, or five-a-day school promotion officers. Whatever, really. The criticism there is generally based on believing the job isn’t worthwhile, and that people should be trusted to look after themselves. My experience of the cost to the state, let alone employers, of people with unhealthy diet and habits is enough to persuade me that a substantial proportion of people can’t, and the debate I want about the above rôles is whether they work, not whether in principle the state should be neutral on lifestyle issues – I don’t think it should.

Anyway, setting aside that risky foray into political philosophy (blame Saturday’s BBC Documentary on Robespierre – happy Bastille Day to all readers) I’m far more concerned about the money we are wasting encouraging people to do unwise things they didn’t rationally ought to do, than the money we are spending encouraging people to do sensible things that they merely don’t want to do. 

So I am going to pick on Family Mosaic Housing, and I apologise – I’m doing so simply because they happen to have crossed my desk, rather than being particularly bad offenders. As far as I can tell they’re good at what they do – managing outsourced housing for a few Councils, and building affordable homes for sale, rent, shared ownership and so forth.

One of those shared ownership properties is in North London, a 1-bed flat for sale. There are a number of 1-beds available in that development, and I have, for the purpose of fairness, picked the cheapest. I assume everyone is familiar with shared ownership – handy for people who want to own some property but can’t get a mortgage for anything like what they aspire to. You buy some of the property, and rent the rest. A number of things leap out of this advert, at least to me.

  • Total cost of ownership is still not that low for a 1-bed flat round those parts. £350 a month mortgage, £280 a month rent, and £130 a month service charge takes it to £760 a month. £850 would rent a 1-bed flat privately without the responsibility for repairs, and so on. Bear in mind that these properties are subsidised with Social Housing Grant from the Homes and Communities Agency, formerly the Housing Corporation.
  • The maths used to market the property are “Based on a Full Market Value of £225,000“. The problem is, that simply isn’t the full market value of a small 1-bed flat in that area. Here is a similar, and I suspect slightly larger, flat in a decent condition on the other side of the main road, which is on the market for £40k less and in the current climate with the stamp duty exemption might be expected to fetch at most £175,000. I was watching The Real Hustle On Holiday, last night, when they persuaded someone to buy Yen at 50 to the pound by showing them a fake website listing the exchange rate as 25. Oldest trick in the book.
  • “The minimum single income required to qualify for this apartment is £21,691”. So, to be clear, if we accept their claims about the market value, we have a state-funded agency encouraging people to buy houses which are worth over ten times their annual income, at a cost of almost 60% of their take-home pay, before food and bills. Am I alone in thinking this is crazy? According to that maths I could, with my savings, be expected to buy a house worth almost £500,000. Of course I wouldn’t even dream of it. Well, alright I would dream of it, but I wouldn’t do it! The minimum joint income for the property suggests that a quarter-million pound house is a sensible purchase for a couple each on the minimum wage. Is it?

All of the above seems to me a situation which replicates itself with alarming regularity in the sale of shared ownership homes, rather than being an outlier. I wouldn’t mind that much (I’d still mind, but less) if housebuilding companies were doing it as a mere marketing exercise, or new business model, but that public/third sector bodies are doing it with taxpayer money, well, it rankles.

Now, with that rant over, I return to my lines. 100x “This is not a housing blog”. I will doubtless return to the topic when it becomes clear which faction has come out on top in the current tussle over Conservative housing policy, if not before.

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5 responses to “The Real Real Hustle

  1. You are pointing at the problem of having a housing association capital finance system based on a kind of ‘Emperor’s New Clothes’ : people can’t really afford property at this price level but in a crazily rising market it can seem their only option. But when market prices fall the HA system of setting prices for homes for sale or shared ownership is, well, just la-la land.

    But it’s not just a problem for the prospective shared owners. It could have structural implications. Moody’s has said one in five HAs could have financial problems.
    because of falling sales. I wittered on about all this here http://tinyurl.com/mqj8eg and here http://tinyurl.com/mgj5sf

    • thelocalgovernmentofficer

      Thanks. I am in large part doing that, it’s puzzling really that the Government think certain immutable laws of economics apply to housing, but don’t apply to, say, banking.

      Also HAs having problems extending their building programmes because the banks won’t lend them extra unless they renegotiate their total borrowings.

  2. richardprichard

    Great post. As usual, lots of tricky issues laid bare.

    So, given that we all understand that there isn’t one answer to a simple question, what should local authorities do ?

    We need to be doing ‘something’, don’t we ?

    • thelocalgovernmentofficer

      Yes. Obviously there are the two Conservative positions outlined above. Thinking on the left, or at least in the Government, is only just moving beyond “let’s knock down old Council tower blocks and build new yuppie tower blocks”, sadly.

      This is interesting, I think – http://www.fabians.org.uk/publications/policy-reports/in-the-mix-narrowing-the-gap-between-public-and-private-housing

      Personally I’m evidently a bit of a luddite, I think a combination of planning policy, tax changes (need national government for the latter if not the former), smart allocations policy and direct works can go some significant way to alleviating the problem. But that’s because I believe the problem is that too many people don’t have a decent place to live, not that they don’t own it.

      Indeed while owning is obviously often nice for individuals (as long as they can afford it) there’s an increasing school of thought among economists that for social and economic reasons there’s an ‘optimum rate’ and it’s not as high as many would think. Of course for the wider economy social rent often has a lot of the drawbacks of homeownership without the advantages – in particular it strongly discourages people from moving away to find work.

  3. Found this blog while doing research, I know it’s old but just thought i’d say keep up the good work!

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